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Malawi’s carbon credit market exposed to fraud

Stakeholders have described the charges CQC Impact Investors is facing in the United States for fraudulent carbon credit trading in Malawi and Zambia as a sign of the country’s weak regulatory environment for the sector.

This follows the charges by the US federal Bureau of Investigations (FBI) on CQC leaders Kenneth Newcombe and Tridip Goswami in connection with a scheme to commit fraud in the carbon markets, which resulted in fraudulently securing an investment of over $100 million (K175 billion).

In a joint press release, US Attorney of New York Damian Williams and assistant Director in Charge of the New York Field Office of FBI James Dennehy, however, ruled out criminal charges because it voluntarily and timely disclosed the misconduct and fully cooperated during the hearing among others.

Williams said: “As alleged, Kenneth Newcombe and Tridip Goswami, among others, engaged in a multi-year scheme to fraudulently obtain carbon credits by using manipulated and misleading data. They then sold those credits to unsuspecting buyers in the multi-billion-dollar global market for carbon credits.

“The alleged actions of the defendants and their co-conspirators risked undermining the integrity of that market, which is an important part of the fight against climate change.”

As a matter of background, according to the statement, CQC which used to generate carbon credits—including a type of credit known as a voluntary carbon unit (VCU), profited by selling VCUs it obtained to companies seeking to offset the impact of greenhouse gases they emit in the course of operating their businesses.

In this regard, CQC ran a project of installing cookstoves in rural Africa and Southeast Asia, where it had to collect data through surveys to determine how much fuel people saved by using its cookstoves, as opposed to the preexisting cooking methods. 

That data went into a formula that an issuer of VCUs (“Issuer-1”) used to calculate the emission reductions CQC had achieved and to determine how many VCUs to issue to CQC.

Reads the statement: “From at least in or about 2021, through 2023, CQC submitted false and misleading data to Issuer-1, tricking Issuer-1 into giving CQC VCUs for emission reductions that, according to Issuer-1’s methodology for calculating such reductions, had not in fact been achieved.

“For example, in or about August 2021, CQC received survey data for two projects in Malawi and two in Zambia. Goswami reported to Newcombe that the survey data reflected emission reductions that were only approximately half of what CQC had anticipated. Newcombe responded by writing that ‘this is a disaster for us’.”

Eventually, the company resorted to manipulating the survey data for the Malawi and Zambia projects and enlisted a person from outside CQC to fill out fraudulent survey forms to reflect the manipulated numbers which were sent to Issuer-1 when claiming VCUs for the Malawi and Zambia Projects according to the statement.

In an interview, Natural Resources and Climate Change committee of Parliament chairperson Werani Chilenga attributed this to the country’s weak regulatory environment where there are no laws to govern the sector.

“Although the country is participating in the carbon market, we don’t have a Carbon Credit Act to provide a framework and that has a potential of not only providing room for such fraudulent dealings but also discouraging credible players from participating in Malawi’s carbon credit market,” Chilenga said.

In a separate interview on Wednesday, environmental journalist Matthews Malata said the recent scandal underscores the urgent need for enhanced integrity and quality in Malawi’s carbon credits.

“It’s imperative that we learn from this incident and take decisive action. In Malawi’s case, this means expediting the finalization of our carbon market framework, which has been in draft form for over a year now. We must transition from consultations to implementation, ensuring our climate change policies are robust and effective.

“Let’s also move fast in enacting our climate change act. The piece of legislation presents an opportunity to safeguard the interests of our nation, investors, and communities, maintaining the integrity of our market,” said Malata.

Officials from the Ministry of Natural Resources and Climate Change were not immediately available for comment but Minister Michael Usi earlier said government has developed an Article 6 Framework for International Carbon Market Engagement, a requirement under the Climate Change Convention for countries to use when transacting on the carbon market.

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